BUSINESS INTERRUPTION INSURANCE AND COVID-19: IS COVERAGE AVAILABLE?

Throughout the COVID-19 pandemic, business interruption insurance has been a hot topic across the nation. Business owners have been looking to their business interruption insurance for some relief from lost revenues, but they have not been successful with their claims.

It is important to read all of your insurance policies carefully and promptly notify your insurer of any claim. Most policies exclude losses caused by a virus. Some policies expressly extend coverage for losses relative to communicable disease, civil authority, ingress-egress restrictions, and/or property damage of upstream supplier or downstream distributor or customer, any of which may apply for a small business in the current COVID-19 climate. With each extension, however, comes a unique set of limitations.

When discussing business interruption insurance in the context of COVID-19, a key issue is whether COVID-19 causes physical damage or property loss. Generally, property damage is required to trigger any coverage under a commercial property policy. Insurers argue that the mere presence of COVID-19 is not enough to constitute property damage. Case law, however, indicates that the loss of use, function or value constitutes physical damage or property loss. How the courts will rule in the current context is yet to be seen.

The relief business owners have been looking for may be on the horizon, as states attempt to shift the economic burden to the insurance industry with new legislation on business interruption coverage. The legislation would force many commercial property insurers to provide retroactive coverage to insureds for losses resulting from the COVID-19 pandemic regardless of the policies’ exclusions and the absence of physical damage to the insured’s property and regardless of premiums charged and the underwriting considerations made by the insurance companies when they issued these policies. The New Jersey legislature introduced the first such bill, New Jersey Bill A-3844, on March 16th, but the bill has not yet been scheduled for a vote before the General Assembly, allowing insurers and lawmakers more time to discuss a solution. A myriad of legal challenges have been presented to the proposed legislation, including violations of the Contracts Clause and other provisions of the U.S. Constitution; and practical problems have been raised including the seismic shift of the economic burden of COVID-19 related losses to insurers who did not agree to cover such losses and ultimately to policyholders through inflated premiums. The probability of passing such legislation remains unknown, but it is certain that legislatures across the nation believe this is a possible avenue by which business owners can obtain relief.

While legislation sits dormant, class action lawsuits relative to denials of business owners’ claims for business interruption insurance coverage have been filed across the nation, three of such filings in New Jersey. It remains to be seen how this will all play out. Irrespective of the uncertainty, it is important to read all of your insurance policies carefully and promptly notify your insurer of any claim, as hereinbefore stated.

As always, the attorneys at Winne Banta are available to assist. If you have any questions about your insurance policies or the impact of COVID-19 on your business, please contact Winne Banta’s COVID-19 Recovery Team at 201.562.1002.